Note that because the returns in

(b) and

(c) alternate, you just need to work out the safe 2-year returns—

thereafter, they will continue in their (unrealistic) patterns.

(a) 5% for both.

(b) Over 2 years, you earn 1.00 . 1.10 − 1 = 10.00%. √ This means that the annualized rate of return is 1.1 − 1 ≈ 4.88%. This is lower than the average rate of return, which is still 5%.

(c) O√ver 2 years, you earn 0.9 . 1.20 − 1 = 8.00%. This means that the annualized rate of return is 1.08 − 1 ≈ 3.92%. This is lower than the 5% average rate of return.
Yes. The difference between its annualized and its average rate of return is greater for a more volatile investment.